Who Can Claim the Child Tax Credit After Divorce?

 Posted on October 22, 2024 in Illinois Divorce

Tax season can add another layer of confusion for divorcing parents, especially when it comes to the Child Tax Credit (CTC). The CTC offers significant tax relief for parents, but who gets to claim it after a divorce? Knowing the rules can help you avoid disputes and protect your finances, and Weiler & Associates, Inc. can help.

As a Certified Financial Litigator, Tim Weiler is an Illinois family law attorney who has the specific experience and knowledge to help you navigate the complexities of financial matters in divorce, including tax-related disputes.

What is the Child Tax Credit?

The Child Tax Credit is a federal tax benefit designed to help parents offset the costs of raising children. For the 2023 tax year, eligible parents can receive up to $2,000 per qualifying child under the age of 17, with $1,600 of that being refundable. The credit can reduce your tax liability and, in some cases, provide a refund if it exceeds the amount of taxes you owe. However, things get tricky after a divorce, as only one parent can claim the CTC for each child in any given tax year.

Which Parent Can Claim the Child Tax Credit?

According to the IRS rules, the parent who can claim the Child Tax Credit is typically the custodial parent, defined as the parent who has the child for the majority of overnights during the year. If you and your ex-spouse have joint custody, the custodial parent is still the one who has the child for more than half the year.

However, there are ways for the non-custodial parent to claim the credit. If the custodial parent agrees to allow the noncustodial parent to claim the credit, he or she can sign IRS Form 8332, which releases the right to the credit for that year. This allows the non-custodial parent to claim the credit, but it must be documented in the divorce agreement or parenting plan to avoid future disputes.

What Happens if Both Parents Claim the Child Tax Credit?

If both parents try to claim the CTC in the same year, the IRS will flag the returns. When this happens, the IRS will use the tiebreaker rule to determine which parent gets to claim the credit. Under this rule, the parent who had the child for the greater number of nights will be allowed to claim the credit. If both parents had the child for the same amount of time, the credit goes to the parent with the higher adjusted gross income (AGI).

If you and your ex-spouse are disputing the credit, this could lead to tax audits, penalties, or delayed refunds for both parties, so it is best to handle this clearly in the divorce process.

How to Handle Child Tax Credit Disputes in Divorce

Tax issues like the CTC can become contentious in a divorce, especially if a lot of money is at stake. It is crucial to address these issues early in the divorce proceedings to avoid confusion down the road. Here are some steps you can take to minimize disputes:

• Ensure that your divorce decree or parenting plan specifies which parent will claim the Child Tax Credit and in which years, especially if you are alternating claims.

• Use IRS Form 8332: If the non-custodial parent will claim the credit, be sure to use this form to document the arrangement.

• Get professional advice from attorneys and accountants: Taxes are complicated, and divorcing parents may face a variety of unique financial circumstances.

Contact a St. Charles, IL Family Law Attorney

Divorcing couples often overlook the long-term impact of tax issues, but with the right guidance, you can avoid costly mistakes. At Weiler & Associates, Inc., our Certified Financial Litigator and Kane County, IL divorce attorneys can help you resolve disputes over the Child Tax Credit and other financial matters in your divorce. Contact us today at 630-331-9110 for a consultation to protect your rights and your finances.